Ailing FPA’s Woes Continue as Stock Falls 33% More
FPA Medical Management, a onetime Wall Street darling hailed for its rapid growth and once-soaring stock price, continued a descent Wednesday that is proving to be even faster than its climb--and which could cause headaches for hundreds of thousands of Californians.
Since stunning the market with a first-quarter earnings report Friday that revealed deep financial problems, the San Diego-based physician management company’s stock has plummeted about 75%, and disgruntled creditors and shareholders are nipping at its heels.
On Wednesday, FPA’s stock fell an additional 33% on reports that creditors have given the firm a June 11 deadline for restructuring its hefty debt load.
A collapse at FPA, which manages the business operations of nearly 8,000 physicians whose patients include 434,000 Southern Californians, could trigger confusion and bureaucratic nightmares for many as HMOs cancel contracts and seek to shuffle patients to other doctors.
The company disclosed in a recent Securities and Exchange Commission filing that it is in technical default on some of its loans. FPA had about $285 million in debt as of May 15, but its cash had dwindled to about $12.4 million at the end of March, the filing disclosed.
FPA shares tumbled $1.38 to close at a record low of $2.81 on Nasdaq, on volume of 10.1 million shares. The stock peaked at $40 last October.
The company has also been hit by several shareholder lawsuits this week that accuse the company and its officers of misrepresenting the firm’s financial performance. One suit, filed in federal court in San Diego, accuses the company of “artificially inflating” the stock price while company officials “reaped more than $61 million of insider trading proceeds.”
Stephen J. Dresnick, who took over as chief executive of FPA in March, did not return phone calls seeking comment.
The financial plight of FPA is another example of turmoil among health-care companies that specialize in buying physician practices and organizing them into large, cost-efficient networks to appeal to HMOs.
One of FPA’s big national rivals, MedPartners Inc., also has stumbled of late, reporting huge losses and the firing of more than 1,000 employees in Southern California alone.
Both publicly traded companies have said they will have to cut costs aggressively to meet profit targets. That is raising concerns about the impact that such medical cost-cutting, coming on top of reductions already made by these firms, could have on patient care.
PacifiCare Health Systems, a large HMO that contracts with FPA for medical services, said it is considering whether to renegotiate certain contracts with FPA, presumably to boost payments for medical services.
FPA, which said its medical costs rose by about $90 million in the three months ended March 31, compared with a year earlier, said it will lay off an unspecified number of workers and close facilities in Long Beach and Miami.
The company also has said that it may pull out of the Sacramento and Arizona markets if it is unable to curtail losses. In the Sacramento area, FPA serves more than 56,000 patients and either employs or contracts with more than 500 doctors.
FPA also said it is reviewing two executive severance agreements valued at $8.2 million, including a $4.8-million package granted to former Chief Executive Seth Flam, who unexpectedly left the firm in March.
Analysts said FPA got into trouble after making a series of rapid acquisitions of medical groups, some of them quite unprofitable.
FPA now operates a network of 7,900 physicians that provides medical care for 1.4 million people in 17 states. The company had revenue of $1.2 billion in 1997, up from $340 million in 1995.
